Question

Raksha had 50 preferred shares and 400 common shares of par value Rs. 100 each. If the dividend declared on preferred shares is 10% per annum and a semi- annual dividend of 7.5% is on common shares, find the annual dividend received by Raksha.

Answer 1

Step 1:

Given information:

Common shares$=400$

Preferred shares$=50$

Par value of each share$=\mathrm{Rs}.100$

Step 2:

Calculate amount of Dividend on preferred shares:

$$\begin{gathered} \mathrm{Dividend}=10\%\mathrm{of}\left(\mathrm{Preferred}\mathrm{share}\times \mathrm{par}\mathrm{value}\right) \\ \Rightarrow \mathrm{Dividend}=\frac{10}{100}\times (50\times 100) \\ \Rightarrow \mathrm{Dividend}=\frac{1}{10}\times 5,000 \\ \Rightarrow \mathrm{Dividend}=\mathrm{Rs}.500 \end{gathered}$$

Step 3:

Calculate amount of Dividend on common shares:

It is given that semi-annual dividend of $7.5\%$ on the common shares.

thus, annual dividend rate $=(2\times 7.5)=15\%$

Amount of dividend is computed as:

$$\begin{gathered} \mathrm{Dividend}=15\%o\mathrm{f}\left(\mathrm{Common}\mathrm{share}\times \mathrm{par}\mathrm{value}\right) \\ \Rightarrow \mathrm{Dividend}=\frac{15}{100}\times (400\times 100) \\ \Rightarrow \mathrm{Dividend}=\frac{3}{20}\times 40000 \\ \Rightarrow \mathrm{Dividend}=\mathrm{Rs}.6,000 \end{gathered}$$

Step 4:

Total annual dividend:

$$\begin{gathered} \mathrm{Annual}\mathrm{dividend}=\mathrm{Amount}\mathrm{of}\mathrm{preferred}\mathrm{shares}+\mathrm{Amount}\mathrm{of}\mathrm{common}\mathrm{shares} \\ \Rightarrow \mathrm{Annual}\mathrm{dividend}=500+6,000=\mathrm{Rs}.6,500 \end{gathered}$$

Hence, the total annual dividend received by Raksha is Rs. 6,500.